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NAII ASSAILS S&P's 2-TIERED INSURANCE RATING SYSTEM

 NAII ASSAILS S&P's 2-TIERED INSURANCE RATING SYSTEM
 NEW YORK, Nov. 26 /PRNewswire/ -- Standard & Poor's two-tiered


system of rating insurance companies is harmful to consumers, Lowell Beck, president of the National Association of Independent Insurers, declared today.
 Beck told a hearing on insurance rating services that S&P's two tiered system would unfairly "lead the public away from many healthy insurance companies that can offer the consumer the right coverage at competitive prices."
 The hearing was held by state Sens. Donald M. Halperin, David A. Paterson and Martin M. Solomon, who are ranking minority members, respectively, of the New York state Senate Finance, Consumer Protection and Insurance Committees.
 "A serious flaw in S&P's two-tiered rating system," Beck asserted, "is that unless a company pays a fee of $15,000 to $28,000, the highest rating it can achieve is a BBBq for a 'qualified solvency rating.' By paying the fee, the company may achieve an A, A(plus), double A or even a triple A for its 'claims paying ability.'
 "If you ask any person which is better, a BBBq or an AAA rating, you know what the answer will be," Beck said. "If a company that would normally qualify for the AAA rating refused to pay S&P's price, they would be assigned the BBBq rating.
 "The public often is told to avoid any financial institution that has a rating below 'A,' " he noted. "This stringent standard is inappropriate now that S&P has institute its new system in which BBBq is the highest possible rank."
 Beck said S&P's two-tiered rating system hurts consumers both directly and indirectly.
 The direct effect, he said, is that they restrict their rational insurance choices. The indirect effect is the negative financial impact that lost business has on a company that no longer is perceived as a good choice, he said.
 "Besides being misleading and unfair, S&P's 'qualified solvency rating' does not even give a true picture of what it seems to be on its face," he maintained. "All that it does is give a purely statistical analysis based on a limited amount of publicly available financial data.
 "This so-called 'qualified solvency' rating does not consider many important factors that affect a person's solvency," he said. "Some of those are the adequacy and soundness of reinsurance, the quality and diversification of assets, capital structure, and the soundness of the company's management.
 "S&P will consider those important qualitative factors, but only if the company subscribes to its other service, that which determines 'claims paying ability' -- and pays for the type of comprehensive analysis that the public assumes supports any S&P rating.
 "In view of its incompleteness, one might wonder if the 'q' in BBBq stands for 'quick and dirty,' " he commented.
 Beck said the insurance industry and all NAII members strongly support the important public service provided by responsible insurance rating services.
 But he said the industry objected to a "reputable rating organization" such as S&P "using the negative stigma of the BBBq rating as a big stick to coerce insurance companies into buying the first tier service that S&P reserves its 'A' rating for."
 He argued that an insurance company's financial rating should be determined by common standards applied uniformly by the rating service or the company should not be rated at all.
 "If this rating by S&P does not give a true picture of how financially sound a company is, then what purpose does it serve?" he asked. "It does not contribute to the public's understanding. In fact, it is deceptive, coercive and a disservice to the public."
 NAII is a trade association representing more than 550 property and casualty companies nationwide.
 -0- 11/26/91
 /CONTACT: Bill Bradford of NAII, 708-297-7800/ CO: National Association of Independent Insurers ST: Illinois IN: INS SU:


SH -- NY043 -- 7260 11/26/91 11:55 EST
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Publication:PR Newswire
Date:Nov 26, 1991
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